Beyond MIRAB: Do aid and remittances crowd out export growth in Pacific microeconomies?

Abstract

The 1980s investigations of post-colonial Polynesian and Micronesian economies emphasised the role of aid, remittances and other rent incomes as 'booming sectors'which 'crowded out'export-driven growth. Contrary to orthodox theory-based models at that time being embraced by the World Bank and International Monetary Fund (emphasising liberalisation and primary product export-oriented economic growth), Bertram and Watters instead highlighted long-run trade deficits and onshore government budget deficits, driven by reliance on overseas migration, remittances, aid and bureaucracy (MIRAB). 'Dependent development' was identified as 'both sustainable and preferable to a drive for self reliance', with the logical corollary that the objectives of the Pacific Islands should be 'the preservation and enhancement of their status as rentier societies'. Yet, this perspective has never sat easily with development-oriented Polynesian or Micronesian political leaders. Despite useful empirical insights, the MIRAB perspective informs a rather complacent and static view of Oceania as caught in some kind of 'steady state' equilibrium, and downplays the role of weak governance structures in inhibiting export production. This article argues that the strengths of the MIRAB thesis are primarily descriptive, whereas the analytical claims to have exposed what determines the evolution of the island economies merit reconsideration. Show more